Gammon unveils robust Ocampo economics

With Aussie junior producer Bolnisi Gold lined up as operator, Gammon Lake Resources (GAM-T) is bullish about the results of an independent preliminary economic assessment and engineering study of its proposed Ocampo gold-silver mine in Chihuahua State, Mexico.

The study looked at two development cases for the project. The base case focuses on current measured and indicated resources and comes with a mine life of 6.1 years. The mine life doubles to 12 years under the second case, which takes into account the development of Ocampo’s inferred resources and a greater emphasis on underground mining.

At last count, Ocampo hosted a measured and indicated resource totalling 21.7 million tonnes grading 1.44 grams gold and 57 grams silver per tonne (1.8 million contained ounces gold-equivalent) plus 5.8 million inferred tonnes of 1.7 grams gold and 86 grams silver (637,000 oz. gold-equivalent).

The study was completed by Colorado-based Pincock Allen & Holt with the help of Nevada-based Kappes Cassiday & Associates, which tackled the metallurgical, engineering and process design work.

Under the base case, a proposed open-pit and underground operation would deliver 468,800 oz. of gold and 20 million oz. of silver at a combined cash cost of US127 per equivalent oz. of gold over the life of the mine.

The open-pit portion of the operation would run through 655,000 tonnes of ore grading 1.8 grams gold and 87 grams silver for 5.5 years. The waste-to-ore stripping ratio is 4.3 to 1. Cash cost are projected at US$142 per equivalent gold oz. At the same time, a 300-tonne-per-day underground operation would target 655,000 tonnes running 7.35 grams gold and 414 grams silver at a cash cost of US$96 per equiv. oz.

The base case comes with a total life-of-mine capital cost of about US$27.1 million. Of that, about US$24.8 million is for the open pit, which would be covered by Sydney-based Bolnisi. Gammon would cover the remaining US$2.3 million price tag for the underground operation on its wholly owned land.

Based on a gold price of US$300 per oz. and US$4.60 per oz. of silver, the base case generates a net present value of US$76.3 million, at a 5% discount rate. The rate of return is 88% and the payback period is pegged at 1.6 years.

The net present value (at a 5% discount) drops to US$45.5 million, the rate of return slips to 54%, and the payback period climbs to 2.1 years when the price of gold and silver fall to US$250 and US$3.83 per oz., respectively.

In March, Gammon signed a deal with Bolnisi, under which the Australian company can earn a 60% stake in five concessions at Ocampo — Plaza de Gallos, Refugio, Conico, Picacho and La Estrella — by completing a feasibility study for an open-pit, heap-leach operation.

Gammon will keep the remaining 40% interest in the concessions and continue to retain a 100% interest in the rest of the Ocampo mining camp. Bolnisi is required to cover 60% of Gammon’s payments due to Minerales de Soyopa under an existing deal to acquire 100% of that company’s Ocampo concessions. Bolnisi will recoup the capital expenses incurred to bring the joint-venture project into production, from 60% of project revenues.

The deal will see Gammon receive 40% of the open-pit production with Bolnisi paying all of the capital costs.

Once a feasibility study is done, Bolnisi must fund all development until production is reached, at the annual rate of at least 1.25 million tonnes, and must pay Gammon $30,000 each month until the agreed-upon production rate is attained.

If, in 18 months, the project is not running at that rate, Bolnisi will pay Gammon a monthly penalty of $100,000. If the property is still not up and running after two years, Bolnisi’s ownership stake in the concessions would be returned to Gammon.

Bolnisi will also have a right of first refusal to match any third-party offer to develop any of Gammon’s wholly owned concessions at Ocampo, though Gammon retains the right to develop these concessions on its own.

Taking the longer-term view, the 12-year operation bumps the project’s net present value to US$176.2 million, at a 5% discount rate. The rate of return climbs to 91% with payback period remaining at 1.6 years. That’s based on the same US$300 and US$4.60 per oz. for gold and silver, respectively.

Over the 12 years, the combined open-pit and underground operation would churn out more than a million oz. of gold and about 44.9 million oz. of silver at a combined cash cost of US$118 per oz.

The open pit would target 10.5 million tonnes running 1.8 grams gold and 87 grams silver over four years. The stripping ratio remains at 4.3. Underground mining would concentrate on 2.3 million tonnes grading 7.35 grams gold and 414 grams silver for 11.5 years.

Gammon would have to come up with an additional US$12.3 million to develop the underground resources, almost all of which are situated on its property. The company would receive 100% of the production from the resources. Overall capital cost for the 12-year program would ring in at US$39.4 million.

In both cases 4,600 tonnes of ore would be processed each day. Leach pads built on nearby flats are projected to give recoveries of 88% for gold and 73% for silver.

In January, Gammon reported results from 48 bottle-roll tests showed average recoveries of 97% for gold and 86% silver over 96 hours. Reagent consumption averaged a low 0.4 kg of sodium cyanide per tonne of material and 1.86 kg of lime per tonne.

Previous column tests on crushed samples from the Refugio and Plaza de Gallos zones showed recovery rates of 88% for gold and 63% for silver during a 143-day leach of material, with 80% smaller than 6.3 mm. With finer grinding, recoveries rose to 91% for gold and 76% for silver after 117 days in the column.

Bolnisi’s ongoing full feasibility is slated to wrap up later this year.

Gammon continues to explore its wholly owned portion of the project.

Looking further into the future, the study suggests that there is potential to add another 1.95 million oz. of gold and 106.5 million oz. of silver to the project’s resources.